Thursday, May 01, 2008

Details Emerge in eBay v. Craigslist

The fuzzy edges around the eBay-Craigslist spat — the subject of a sealed complaint filed last week — came somewhat into focus yesterday with the release of a redacted version of the complaint.

EBay, which acquired a 28.4% stake in Craigslist back in 2004, creating an unlikely union between an Internet powerhouse and a classified listings site with a cult following, is now suing closely-held Craigslist in the Delaware Court of Chancery for diluting its stake. Last week, in a blog entry posted on its site, Craigslist said it was “surprised and very disappointed” by what it said were eBay’s “unfounded allegations.”

But, reports the WSJ, in a redacted version of the complaint made available yesterday, eBay alleges that Craigslist’s directors — founder Craig Newmark and CEO Jim Buckmaster — held clandestine meetings last October to dilute eBay’s stake after eBay created a rival to Craigslist, called Kijiji, a Web classifieds site. (Click here fore the complaint.)

Here’s the time line of events, according to the complaint:

June 29, 2007: Ebay launched Kijiji in some U.S. markets (previously, it’d only been introduced outside the U.S.). The same day, Buckmaster sent a letter to eBay asserting that it had engaged in competitive activity.

July 12, 2007: Buckmaster sent an email to Whitman, in which he expressed “negative” feelings toward eBay’s introduction in some U.S. areas. He also said “we are no longer comfortable having eBay as a shareholder, and wish to explore options for our repurchase, or for otherwise finding a new home for these shares.”

July 23, 2007: Whitman responded, reassuring Buckmaster that eBay had taken steps to “completely firewall off” its Kijiji operations from the corporate management of its equity stake in Craigslist. She also said that eBay is “so happy” with its Craigslist relationship that “we would welcome the opportunity to acquire the remainder of (the company) we do not already own whenever you and (Mr. Newmark) feel it would be appropriate.”

October, 2007: Buckmaster and Newmark, who together own 71% of Craigslist, held two board meetings with an outside lawyer, Edward Wes, without notifying eBay. The complaint alleges that the two-person board initiated a series of transactions — such as the issuance of “reorganization” shares and the initiation of a “poison pill” — in December 2007 and January 2008 that hurt eBay’s interests as a minority shareholder, including diluting eBay’s stake in Craigslist from 28.4% to 24.85% .

On its site, Craigslist said it will file its formal response to eBay’s suit in the next few weeks. “As those who know us best will recognize, every measure we have taken has been for the sake of protecting the long term well-being of the Craigslist community.”